Hidden Dangers, Proceed With Caution

Jun 1, 2003

The failure of international investors to thoroughly vet potential partners can have costly consequences. It is more important than ever that corporate acquisitions in Latin America include exacting pre-deal research and analysis.

Investing in Latin America is not for the faint-hearted,
even at the best of times and with the best of partners. The
recent experience in Argentina of Dutch Royal Ahold is a
perfect example of what not to do.

In 1998, Ahold created a 50-50 joint venture with Velox
Retail Holdings, the banking and financial a company owned by
Uruguay's Peirano family, to run a chain of supermarkets in the
region. The Peiranos had built a small financial empire in
Latin America controlling banks in Argentina, Uruguay and
Paraguay. The joint venture with Ahold included Disco, a chain
of Argentine grocery stores.

In August 2002, after Velox declared bankruptcy, Ahold was
forced to take over its partner's stake in Disco, including
assuming $492 million in debt. Four members of the Peirano
family now are in a Uruguayan jail, accused by a local
accountant of looting $400 million from Uruguay's Banco...